As the coronavirus pandemic continues to affect India’s economy, a K-shaped economic recovery reveals a contrasting picture. This type of recovery, highlighted in the latest ICE360 Survey 2021 conducted by People’s Research on India’s Consumer Economy (PRICE), examines how different sectors have coped and local households have been affected.
Understanding the K-Shaped Economic Recovery
In a K-shaped economic recovery, various parts of the economy bounce back at varied rates, timings, and degrees. This scenario diverges from a uniform, consistent recovery across all sectors, industries, or demographics. This K-shape is visualized by charting the paths of diverse economic components, which may split, resembling the two arms of the letter ‘K’. These outcomes signal significant changes in the economy’s structure or wider society as economic results and relationships are fundamentally altered due to the recession.
The ICE360 Survey
The Mumbai-based think tank, PRICE, conducted the survey between April and October 2021. It incorporated 200,000 households in the first round and 42,000 in the second. Their findings paint a starkly contrasting economic scenario in the aftermath of the COVID-19 pandemic.
Impact on Household Incomes
The annual income of the poorest 20% of Indian households saw a dramatic 53% decrease in the pandemic year 2020-21 from their levels in 2015-16. Notably, these incomes have been consistently escalating since 1995. In contrast, over the same five years, the wealthiest 20% witnessed their yearly household income increase by 39%. This disparity underlines the severe economic impact the pandemic has had, especially at the bottom of the pyramid.
Urban Poor: The Worst Hit Demographic
Results suggest that the virus hit the urban poor the hardest, decimating their household income. This led to job losses and diminished income for casual labor, small-time traders, and household workers. The pandemic-induced standstill significantly contracted the GDP by 7.3% in 2020-21.
Shift in the Distribution of Poverty
In 2016, about 90% of the poorest 20% resided in rural India; fast forward to 2021, and this number has slipped to 70%. Conversely, the share of urban dwellers among the poorest 20% has surged from approximately 10% to 30%.
The Economists’ Perspective
Economists argue that more needs to be done to prevent a K-shaped recovery in the economy rocked by the pandemic. They cite both bright spots, including the health of large firms, thriving IT sectors, and some aspects of the financial sector, and dark stains such as high unemployment, low purchasing power, and the financial stress experienced by small and medium-sized businesses.
Recommendations
To alleviate pain in the hardest-hit areas, targeted government spending is urgently needed. Economists advocate for a credible target for consolidated national debt over the next five years, coupled with an independent fiscal council to monitor budget quality. Expanding budgetary resources through asset sales, including parts of government enterprises and leftover government land, could also be factored into these measures.
